This unrealistic net profit is made underlying the assumption that we can keep the market share at the same level, and then if we change the rice, advertising and selling effort, we will make a big net profit. 2. Repeat exercise 1 using the Smart Sheet. Using the smart sheet, if we change price into $500 per unit, both advertising and selling are O, we will get the net loss Of 4 million loss. Under this assumption, the market share decreased to O, which makes sense.
In the real world, if we charge a price twice as high as the original one, but we did not allocate any effort in advertising and selling, no one would make the purchasing of a unreasonable product with a high price but low awareness. Comparing with the simple sheet, we can easily find that smart sheet would be more reasonable for the real world because of its internal relationship among the variables and objects. C 3. Using the Smart Sheet, what is the profit maximizing level of advertising, selling effort and price? (Hint: Requires Solver) Would you recommend the firm implement this policy?
Why or why not? D Using the Smart Sheet, if we want to achieve the profit maximizing level of $1 we need lower our price to $275 per unit, but we have to increase he advertising and selling distribution to $1,589,271 and $1 respectively. I would not recommend the firm to implement this policy. Because our profit only increase by $224,061 but we have to spend $722,297 more on advertising and selling. This increase on net profit is not efficient enough. Also, due to the increase on price, our market share deceases from 3. 0% to 2. 7%.
As a summary, I would not recommend this policy. 4. What if the firm’s goal was not to maximize profit, but to maximize market share while maintaining profit at no lower than lastyear’s level. Hint: Requires Solver”and be sure to start with a feasible level of profit). Compare this policy to the one you found in question If we want to maximize the market share but keep profit larger or equal to last year’s level, the optimal price would be 5244, the optimal advertising expense would be $1 the optimal selling effort would be $1 , 277,070.
Comparing with the policy in the question, the net profit would not change. But we need to spend $1 ,064,744 on advertising and $277,070 on selling; meanwhile, the market share increase to 3. 8% due to the decrease in price. If the company were looking for short-run efficient achievement on net profit (which kept the same), this policy would not be attractive because they spend way more than they earned. However, if they were looking for a long-run goal, this would be more valuable because the increase on market share would help the company chasing the leadership status in the industry. 5.
Comment on the strengths and limitations of a response function approach (Smart sheet) like this in practice. 0 In my personal opinion, a response function approach like Smart Sheet lets he marketers realize the effects of changes on variable more directly and reasonably. Firstly, comparing question 1 and 2, using smart sheet would make the result more realistic. It will consider the relationship beyond different variables, such as the change of price and advertising or selling effort would definitely affect the market share. Therefore, we won’t have a unrealistic result with limited help.
Secondly, through question 2-4, smart sheet makes it possible for marketers to simplify the decision context and reate decision architecture to help manager focus on the key issues. All we need to do is making correct constrains and figure out what are the variables and targets objects. Moreover, it enables us to assess the opportunity costs associated with our decisions and determine the potential value Of alternatives whether we should take or not. However, the limitation for a response function approach would be some uncontrollable variables such as market size or the competitive.
For the spreadsheet model to make sense, the model developer must define bjectives and variables explicitly and specify the relationships between variables. If we did not consider carefully of these uncontrollable variables and just follow the result the model gave us, we still have a risk of market failure. To be a good marketer, we only can treat these models as great tools but not really rely on them. Further more, the model just figure out the result for our requirement but would not tell us whether the decision is worthy to take or not. We still need to use our experience and knowledge to make our decision.
